We are at the beginning of a substantial and permanent shift in the age distribution of our population. This shift was caused by the drop in birth rates from the long-time average level of about three children per woman through 1965, to just two children per woman since 1975. By 2040, there will be only two workers for every OASDI [Old Age, Survivors and Disability Insurance] beneficiary, down from three workers per beneficiary throughout the period 1975 through 2008. As a result, the cost of Social Security will shift from about 4.5 percent of GDP to a stable level of 6 percent of GDP [Gross Domestic Product] by 2040. Currently scheduled tax revenue will remain at about 4.5 percent of GDP. Making Social Security solvency sustainable will therefore require a choice to:
- Increase revenue by 33 percent after 2035,
- Reduce benefits by 25 percent after 2035, or
- Enact some combination of these changes
In the absence of legislation, the combined OASDI Trust Fund reserves are projected to become exhausted in 2036, with only 75 percent of presently scheduled benefits payable thereafter through 2085.Note that people living longer isn't the problem. It's women having fewer children. I suppose that Republican plans to make it more difficult to obtain contraceptives would do something about that.
Goss listed the various proposals for dealing with the situation -- apart from making it more difficult to obtain contraception. My favorite is to lift the cap on the Social Security tax so that it covers all wages. It's simple. It takes care of the problem. It raises taxes only on those most able to bear the tax increase. Most people will be unaffected.
I note that many of the "Chicken Littles" raising panic about the trust funds are the same people baiting immigrants. Anyone concerned about the trust funds should thank their lucky stars for the Hispanic population, because they are at least having kids.
ReplyDeleteFrom a paper entitled "Social Security: Why Action Should be Taken Soon," published by the Social Security Advisory Board:
ReplyDeletePages 14-15 "Income from payroll taxes and taxes on benefits is expected to be higher than spending for benefits and administrative expenses until the year 2017. Thus, until, 2017. the Social Security program will be a net plus for the Federal budget. This Social Security surplus helps to reduce the projected deficit in the so-called unified federal budget.
The U.S. Treasury borrows Social Security's surplus income, uses it for other government purposes, and issues bonds to the Social Security Trust Funds.
Beginning in 2017, Social Security expenditures will be higher than tax income. At that time, an amount equal to all of the tax income and a part of the interest due to the Trust Funds on outstanding bonds will be needed to pay the benefits that are due. TO THE EXTENT THAT PROGRAM COSTS EXCEED SOCIAL SECURITY TAX INCOME, THE FEDERAL GOVERNMENT WILL HAVE TO FIND ADDITIONAL FUNDS ELSEWHERE TO MEET ITS OBLIGATIONS TO SOCIAL SECURITY BENEFICIARIES."
I wonder how come Mr. Goss did not mention the budget ramifications of tapping the trust fund interest to help pay bills, as occurred actually in 2010.
He implies there are no cash flow needs until the trust fund is exhausted, and the needs are due strictly to demographics, as opposed to the hollowness of the trust fund due to the "Treasury borrowing surplus income, and using it for other government purposes."
http://www.ssab.gov/documents/WhyActionShouldBeTakenSoon.pdf.
Don Levit
"Republican plans to make it more difficult to obtain contraceptives"?? This is why liberals have no credibility. Just make stuff up and repeat it until enough dumb people buy it and vote democrat. Please don't clog up this blog with useless diatribes with no basis in fact.
ReplyDeleteScrap the Cap:
ReplyDeletehttp://justscrapthecap.com/
The only problem with scrapping the cap is that you are going to see a vast increase in outlays of benefits to those beneficiaries.
ReplyDeleteBetter way to do it: remove the cap on both employee and employer for the Medicare portion of FICA, leave the Social Security cap on the employee side of FICA, and remove the Social Security cap on the payroll tax side. Medicare gets as full funding as possible, employee taxes and resulting benefit increases are more limited, while the SS trust funds gain additional revenue from the employer-side payroll tax.
I say it is the closest thing you'd see to a win-win situation.
Anon at 5:54. The cap on Medicare FICA was removed in 1993.
ReplyDeletehttp://www.ssa.gov/oact/COLA/cbb.html#Series
Happy to see you're finally willing to acknowledge that there is a problem, Mr. Hall. For the longest time, your comments on the blog have insinuated that discussions of an insolvent social security are but scare tactics. Happy to see you come around to reality.
ReplyDelete